Overview on Corporate Filings
Are you looking to start up your own corporation? Incorporation is a critical aspect to creating a successful business, and its benefits are immeasurable to the shareholders of the company. The process of incorporation involves the careful preparation of certain documents, including the Articles of Incorporation, which are filed with the Secretary of State. If you are going to be creating an LLC, then the document that will be used to incorporate the company is an Articles of Organization.
Why should you incorporate? One reason is the self-employment tax savings, which can add up to thousands of dollars each year. Incorporating also offers the shareholders a wide range of benefits such as medical reimbursement plans, the option of a 401k and other retirement plans. Corporations are easier to raise capital from investors and they make it easier to obtain credit. Additionally, with corporations, the shareholders are not held liable for the corporate debts, which is one of the most attractive benefits of forming a corporation.
A corporation is considered to be a legal entity that is distinct and separate from its owners or shareholders. A Corporation offers the rights and responsibilities that an individual enjoys, meaning a corporation can enter into contracts, it can sue or be sued, it can hire employees, own assets, and it can loan out money or borrow money. However, one of the most important aspects of a corporation is limited liability. With limited liability, the shareholders have rights to the profits of the company through appreciation of the stock or the dividends; however, they are not held personally liable for the debts incurred by the company.
Corporations are incorporated (created) by a group of shareholders who together have ownership of the corporation, which is represented by the shareholders holding common stock. The shareholders elect a board of directors who then oversees the management of the corporation. While corporations aren't required to be for profit, the majority of corporations are created with the purpose of generating a return for the shareholders. When someone purchases stock in a company, they are becoming part owner of the company.
Types of Corporations
Incorporation is absolutely essential if you want to have a successful business. At Langdon Davis, we can help you get your business off to the right start, and we can take the mystery out of the process of incorporation. One of the most important aspects of incorporation is shielding you from liability. We can help you protect yourself from your business liabilities. If you are currently operating an unincorporated business, then the creditors may be able to reach your personal assets, and this is the last thing that you want to have happen. With an unincorporated business, your personal home and the money in your personal bank account may be used to satisfy a lawsuit or pay your business debts. Once you incorporate, the creditors for the business cannot touch your personal assets since an incorporated business and its owners are separate. There are three main types of corporations for a for-profit company and they include: a C-Corporation, an S-Corporation, or an LLC.
C-Corporation – A C-Corporation is the most common type of corporation, its benefits include protection from personal liability, low formation fees, stock can be transferred easily, and there can be a large number of shareholders. The disadvantage of a C-Corporation is that it is subject to double taxation.
S-Corporation – The S-Corporation is very similar to the C-Corporation; however, it is not subject to double taxation. The profits from this type of corporation are taxed at the individual level, whereas with a C-Corporation, the profits are taxed at both the individual level and the corporate level.
S-Corporations are first established as C-Corporations by filing the Articles of Incorporation with the state. The C-Corporation can be converted into an S-Corporation once an additional step is taken by filing with the IRS. However, not all C-Corporations will qualify; they must first meet all of the qualifications in regards to the ownership requirements.
LLC – An LLC is known for offering the benefits of both business types. An LLC is often preferred because it avoids the double tax of a C-Corporation, yet at the same time it offers the owners personal liability protection. The LLC also offers management flexibility, less strict state requirements, and more relaxed ownership requirements. However, the LLC has restrictions regarding how ownership is transferred.
Contact Us to Schedule a Consultation
At Langdon Davis, we can help you determine which type of corporation is best for your company. We can take the guess work out of the process and clearly lay out the steps that you need to take. We can answer all of your questions and explain the advantages and disadvantage of each type of corporation. We can help you file the Articles of Incorporation or Articles of Organization (as in an LLC) with the state and we can help you with all other aspects of the process including naming the company. When incorporating your business, it's important to get it right. Let us help you streamline the incorporation process; give us a call today so we can get started.
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